Watch out for beef trade hurdles

Risk of gridlock through complex negotiations

by Sam Nugée in London

Fri 30 Jun 2017

Initial weeks of negotiations on the UK's exit from the European Union will set the tone for the next two years: they are likely to be tortuous. Politically-motivated haggling over relatively minor issues risks derailing the process by delaying it longer than the UK can afford. The beef trade, while representing only a miniscule portion of total UK trade, illustrates well the potential for controversy.

When the UK leaves the EU in 2019, with or without a trade deal, it will have to re-establish itself as an independent member of the World Trade Organisation. It must renegotiate each of the 750-plus international agreements to which it acceded as an EU member. Of these, 295 are trade accords with partner nations and other countries whose approval is required. But the UK's direct experience of negotiating trade deals is limited, as it deferred much of this responsibility to teams of EU (and before that European Community) negotiators over the last 40 years.

Beef exports and imports for the UK are worth roughly £150m per year, a small segment of the UK's £1.2tn of annual global trade. British beef is produced to some of the highest animal welfare standards in the world. This may buttress the UK's hand in beef trade negotiations. However, there is a plethora of interested parties and commitments to satisfy.

The foremost commitment is the EU's 'Hilton' tariff-rate quota, named after the hotel where it was originally agreed, for high-quality beef imports. Tariff-rate quotas allow certain quantities of goods or services to be imported either duty-free or at a low tariff. These quotas must carefully balance protecting domestic producers with permitting some real market access for trading partners.

The EU's Hilton quota is estimated at 37,800 tonnes of imports and charged 20% import duty. Any change to this quota concerns not just the UK and EU, but the primary sources of the EU's high-quality beef imports as well, namely: Argentina, Australia, Brazil, Canada, New Zealand, Paraguay, Uruguay and the US.

There are three options. First, the UK's portion of the quota could be cancelled. Beef-producing nations would protest as their low-tariff exports to the EU would reduce. Second, the UK could suggest the EU takes on the entire Hilton quota. European farmers would complain as a higher volume of low-tariff beef entered the market, making their beef less competitive. Neither of these are, in practice, feasible.

The third option is that the UK and EU can divide the quota between them. This could reasonably be calculated by comparing UK and EU consumption of beef, and dividing the quota accordingly. However this calculation will be subject to further political wrangling as well.

The EU could pressure the UK to take more than its 'fair share' of the quota, motivated by the political desire to appease European farmers and reduce the UK's competitiveness outside the bloc. This would prompt uproar among British farmers as low-tariff beef inundated the UK.

Moreover, Hilton beef-producing nations around the world would have considerable interest in the haggling and would campaign to influence the result. They might take the opportunity, too, to demand the Hilton quota is expanded, to benefit their own farmers and reflect trends in international beef trade.

To complicate things further, the UK and EU will want to continue trading beef with each other irrespective of whether the UK is outside the single market. Striking a balance that appeases farmers in the UK, the EU and other trade partners, as well as the leaders of all nations concerned, will be a Herculean task. The quota was first revised in 1995, but was not certified until 2010.

Finalising a plan for the beef trade is just one of hundreds of politically controversial arrangements that must be completed. When negotiators come to more complex areas, dealing with international supply chains and labyrinthine regulations, the likelihood of debilitating political gridlock will escalate.